Small business confidence dips; pending noncompete ban impacts few [WSJ/Vistage May 2024]

Like saplings swaying in the breeze, each month new economic shifts, policies and trends sway the sentiment of small businesses to be more — or less — optimistic.

This month, optimism among small businesses swayed toward less optimism as the WSJ/Vistage Small Business CEO Confidence Index dipped to 87.1, sliding from the peaks reached just a few months ago.

Notably, the rates-of-change — the velocity of movement compared to last year and the last 3 months — are still on the rise, even with small declines across each component of the Index. As we move forward, the recent peaks recorded in February and March will move further away in the rearview mirror and momentum could shift downward.

Economic optimism wanes

The improving economic optimism among small businesses at the start of the year has waned, with the latest month-over-month declines coming from economic sentiment. Inflation, supply chain, unchanging interest rates and new tariffs on China all are part of the financial equation that makes growing forward a challenge for small businesses.

With projections that the Federal Reserve will not lower interest rates until later into the year, small businesses need to consider the opportunity cost of waiting for lower rates or investing now. The burden of increased labor costs impacts small businesses across the board; 59% of small businesses report that this is the biggest inflationary cost. This, in turn, may be the reason small businesses are holding off on workforce expansion as just 48% are planning to expand their workforce in the next 12 months.

One of the factors not impacting CEO confidence is the vote by the U.S. Federal Trade Commission (FTC) to ban non-compete clauses in employment contracts. Ahead of this rule taking effect September 4, 2024, small businesses shared their thoughts on the impact of this new rule.

To noncompete or not to noncompete

When asked about the impact of the noncompete ban, more than 4-in-10 small businesses said they will not be impacted, while 21% believe they will be.

The reason behind that sentiment? Nearly 6-in-10 (58%) of small businesses reported they do not use noncompete agreements. On the other end, only 20% of small businesses require all employees to sign a noncompete agreement. About a quarter (22%) require some employees (mostly senior leaders) to sign and just 15% of CEOs of small businesses reported they have signed a noncompete.

Experts in our community advise leaders of small and midsize businesses on timely topics such as this. In this short video, Vistage speaker Hunter Lott shares insights from a human resources perspective. He notes that some jurisdictions already have some rules and limitations in place today and it is important to seek legal guidance.

Seeking legal guidance is exactly what survey respondent Kristina Kuprina, president and portfolio manager at Sequoia Wealth & Investment Management in San Jose, California plans to do. “The concerns of our clients are that the FTC has missed the significant difference between allowing employees to take the knowledge they have learned to their next job and taking clients/resources or IP to another firm,” she says.

Kuprina says her clients also believe that investments in employees’ skills and knowledge should be considered part of this new rule as the ban “does not take into account situations where a company spends significant resources in training or education only to have the employee take their newfound skills elsewhere,” she adds. Kuprina’s clients are among those who believe this rule should be modified to be fair to both employer and employee.

May highlights:

The May WSJ/Vistage Small Business CEO Confidence Index survey was conducted May 6-13, 2024, and the results reflect insights from 499 leaders of small businesses with $1-20 million in revenues.

• Current Economy: 19% of CEOs believe the economy has improved compared to last year, while 34% think it has worsened.
• Future Economy: 21% of small business leaders expect the economy to improve in the next year, while 27% expect it to worsen.
• Revenue projections: 58% of CEOs expect increased revenues in the next 12 months, while 15% expect decreased revenues.
• Profitability projections: Less than half (45%) of small businesses expect increased profits in the next 12 months, while 20% expect profits to decline.
• Fixed investment plans: 32% of small businesses plan to increase investments, while a growing proportion (15%) plan to reduce spending in the next 12 months.
• Workforce expansion plans: Fewer than half of small businesses (48%) plan to expand their workforce in the next 12 months, and just 8% report an expected decrease.

To explore the full May 2024 WSJ/Vistage Small Business dataset, visit our data center or download the infographic.

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